BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  2

DATE:  February 19, 2001	Submitted by: TAXATION AND REVENUE DEPT.       
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER:  HB-888

SPONSOR:  Representative Lujan

BILL SHORT TITLE:  Municipal Tax for Water and Wastewater Projects

CONFLICTS, DUPLICATES, COMPANIONS:  HB-164, HB-675

DESCRIPTION:  This bill resurrects the Supplemental Municipal Gross Receipts Tax of up to 1% which was effectively eliminated by the legislature in 1986.  Only the cities of Santa Fe and Espanola would be authorized, with voter approval, to impose the local option gross receipts tax at a rate of up to 1.00% to fund municipal water systems and wastewater systems financed by special obligation bonds.

Santa Fe and Espanola would be authorized to impose the tax of up to 1% in increments of 1/16th of one percent.  The prior law limit of $9 million in the amount of bonds would be eliminated.  The described use of the bond proceeds is revised to include “wastewater systems”, in addition to the current law use for acquiring water rights and a municipal water supply system.

EFFECTIVE DATE:    Effective immediately under an Emergency Clause (Section 7 of the bill);
			otherwise, not specified – assume 90 days following adjournment (approx. June 15, 2001).

FISCAL IMPACT (Thousands of dollars)   Parenthesis ( ) indicate a revenue loss:

	Estimated Impact on Revenues	Recurring or		
		Full Year	Nonrecurring	Funds 	
	(FY 2001-2002)	(FY 2002-2003)	     Impact     	         Affected         	
	13,580	33,950	Recurring	Santa Fe Water & Wastewater Systems	
	1,066	2,673	Recurring	Espanola Water & Wastewater Systems	
	453	1,132	Recurring	TRIMS/NMFA Administrative Fees (1)	

The cities would probably not be able to impose the tax prior to January 1, 2002.  The fiscal year 2002 revenue impact illustrates a January 1, 2002 tax implementation resulting in 5 months of accrued revenue during FY 2002 (collected February through June and distributed in March through July, 2002).

The level of revenue should be able to support approximately $428 million in bonds for Santa Fe and $33 million in bonds for Espanola for water and wastewater systems (assuming 20 year bonds at 5% and a coverage ratio of 1).

(1)  The 3% TRD Administrative Fees are directed to TRIMS bonds issued through the NMFA through December 2006 or the date the bonds are fully discharged.  After that date, TRD Administrative Fees are directed to the State General Fund.

ADMINISTRATIVE IMPACT:   No substantial administrative impact on the department.

OTHER IMPACTS AND ISSUES:

•	Creation or expansion of local option taxes of this sort, particularly at the tax rate level of up to 1.00%, may inhibit the ability of the state to raise revenue from the gross receipts tax, assuming there is a maximum tax rate the public will tolerate.

•	Since this local option tax is designed to be pledged toward special obligation bonds, and no legislative action may interfere with existing bonds, the legislature might find its options somewhat more limited when dealing with gross receipts tax issues in the future.  Virtually every type of authorized local option gross receipts tax, as well as the 1.225% amount shared by the state with municipal governments, has been pledged toward bonds by one local government or another.

OTHER IMPACTS AND ISSUES (continued):

•	Currently, the cities of Raton and Ruidoso impose the Supplemental Municipal Gross Receipts Tax, each at a rate of 1.00%, to fund municipal water systems.  Those taxes were first imposed in 1981 and 1983.  Laws 1986, Chapter 20, Section 80 provided that no additional impositions of the Supplemental Municipal Gross Receipts Tax would be allowed.

The City of Raton’s tax is scheduled to continue until the year 2022 (a 40 year bond) after having been extended from the original schedule, although the city estimates the bond can be paid-off and the tax eliminated some time in the year 2018.  The Village of Ruidoso’s current tax is scheduled to end in 2003, but the bond is expected to be refinanced and extended for an additional 15 to 20 years.  Legislative action was taken in 1997 to allow this expected refinance and extension which is expected in the next couple of years.

•	The statewide weighted average gross receipts tax rate is about 5.89%.  The tax rate in Albuquerque, one of the lower tax rates in the state at 5.8125%, has a strong influence on that weighted average, and the majority of municipal locations have tax rates in excess of 6%.  The tax rate in Raton is 7.0% and the tax rate in Ruidoso is 7.1875%.  Currently, Espanola’s gross receipts tax rate is 6.1875% in the Rio Arriba County portion, and 6.33125% in the Santa Fe County portion of the city.  The City of Santa Fe tax rate is 6.4375%.

•	The fact that this tax was repealed in 1986 but is still alive and can be resuscitated demonstrates just how hard it is to kill a tax which has a constituency.